The ATO is increasing its focus on non-resident withholding tax for payments of royalties, dividends, and interest. Businesses must understand their obligations, including filing reports, registering for PAYG withholding, and considering relevant tax treaties or exemptions. This article highlights key requirements to help you stay compliant.
The focus on non-resident withholding tax obligations
The ATO is concentrating on the withholding tax responsibilities associated with payments of royalties, dividends, and interest to non-residents.
In the event that withholding tax obligations arise, taxpayers must file an annual investment income report or register for PAYG withholding with the ATO.
It’s critical to identify the client’s small, medium, or large withholding status as well as any relevant tax treaties or withholding tax exemptions when calculating withholding responsibilities. Certain tax treaties, for instance, guarantee that interest paid to a separate bank that is a resident of the applicable foreign nation is exempt from withholding tax.
Typically, until the required withholding amount is paid to the ATO, Australian citizens who must pay withholding tax on interest or royalties will not be allowed to claim a deduction for these expenses.
ATO has sent out several advisories targeted explicitly at withholding tax arrangements, such as:
- Taxpayer Alert TA 2018/4 Accrual deductions and deferral or avoidance of withholding tax
- Taxpayer Alert TA 2020/3 Arrangements involving interposed offshore entities to avoid interest withholding tax
- Taxpayer Alert TA 2022/2 Treaty shopping arrangements to obtain reduced withholding tax rates
Let us help you and your team navigate these changes and stay compliant. Contact us today.
